Article:

Are you meeting your tax obligations as a gym owner?

20 April 2022

Leisa Rafter, Partner, Tax |
William Tuffley, Partner, Business Services |
Sally Preston, Partner, Tax |

The market size of Australia’s health and fitness industry, which primarily consists of health clubs, fitness centres and gymnasiums, currently sits at $2 billion and is expected to continue to grow during the next five years, according to IBISWorld.

In anticipation of this growth and the expected increase of employment within the industry, it is important gym owners are aware of their obligations when it comes to paying staff or contractors and the flow-on effect to payroll tax and workers’ compensation insurance.

In this article, we explore the key employee versus contractor considerations gym owners need to take on board to ensure they meet their tax obligations and avoid any expensive consequences. 

Many gyms expect instructors and personal trainers to have a personal Australian Business Number (ABN) and, on completion of a class or training session, the instructor/personal trainer must invoice the gym directly. In many cases, these trainers are considered contractors by gym owners. But, is this really the case when we consider the reality for most is:

  • The gym provides the equipment i.e. spin bike, barbells, and stereo - the only thing the instructor needs is music
  • The work cannot be outsourced by instructors and personal trainers to another trainer. In the event a trainer cannot teach their class and enlists another trainer to take the session, the original trainer does not receive payment and the substitute trainer is required to invoice the gym directly
  • Permanent instructors are usually required at the gym at a set time and day each week. In many cases, contracts outlining what the instructors/personal trainers can and cannot do and the expectations around remaining current with their qualifications are signed by the instructor prior to employment
  • Instructors/personal trainers are expected to carry their own insurance and keep qualifications up to date.

There are inconsistencies across the industry, with many larger health clubs and some smaller gyms having the same requirements of their trainers, yet they place trainers on payroll.

Payroll tax for gym owners

Where a contractor is a deemed employee, payments made to the contractor, plus any superannuation and PAYG withholding amounts, are subject to payroll tax as wages.

In addition, payments made to contractors may be subject to payroll tax even where the contactor is a genuine independent contractor.

In all states other than Western Australia, payments made to genuine contractors are included in taxable wages for payroll tax purposes unless a specific exemption applies. This can be particularly relevant for the fitness industry, where gyms often engage instructors as contractors for ongoing services or on a long-term basis. 

Contractor exemptions

Payments made to genuine contractors are included in taxable wages for payroll tax purposes unless one of the following exemptions applies:

  • The same or similar services provided by the contractor to the business do not exceed a total of 90 days in a financial year. For example, payments to a fitness instructor who provides services to the business once per week (52 times throughout the year) would be exempt
  • The type of services provided by a contractor are required by the business for less than 180 days in a financial year. For example, a landscaper is hired by a gym to perform landscaping services to work on a specific project. The landscaper provides services for 120 days in the financial year to complete the project. As the gym does not usually require landscaping services, payments to this contractor would be exempt
  • The services are performed by two or more people. For example, a gym’s contract with a bookkeeping business for ongoing bookkeeping, and two employees of the bookkeeping business provide the services
  • The services provided are ancillary to the supply of goods. For example, where gym equipment is set up by a technician, the installation services will be exempt as they are ancillary to the supply of the goods
  • The services provided by the contractor are normally also provided to the public generally. To be able to rely upon this exemption, the business will need to apply to the Commissioner for approval.

Gym managers should keep sufficient records and evidence to support the application of the above exemptions. If a contractor is a deemed employee, the above exemptions are not available.

Where a business has not included payments to contractors in its taxable wages that should have been included, penalties and interest on top of any payroll tax liabilities apply.  

Employee versus independent contractor – PAYG withholding and superannuation

There is a possibility payment made to instructors/personal trainers would be subject to PAYG withholding and Superannuation Guarantee contributions. 

The High Court has recently considered two crucial cases regarding the distinction between employees and independent contractors. It was held that legal rights and obligations established under a written contract/agreement can determine the character of the relationship between the parties and is the primary test. These decisions move away from the previously accepted ’multi-factorial’ test adopted in Australian courts during the past 30 years.

Although there has been a shift in the interpretation by the Courts towards more emphasis on the provisions of the contract/agreement between the parties, many of the factors listed above regarding gym expectations indicate an employment relationship, so further consideration should be made for anyone under these arrangements.

Case studies

We note the following summary of the recent High Court decisions by way of example:

  • CFMMEU v Personnel Contracting: It was decided that a construction worker was an employee of a labour hire company. The company had not previously paid the worker any employment entitlements. The reasons for the decision included that under the contract, the company had a right of control over the worker, and the worker was required to supply his labour under the agreement. Even though the worker was engaged under a contract that described him as a ‘self-employed contractor’, the court held this did not change the character of the relationship, which was found to be an employee relationship.
  • ZG Operations Australia Pty Ltd v Jamsek: In this situation, the persons had been employed initially by the company as truck drivers. These arrangements were changed in the mid-1980s by the company, requiring the truck drivers to purchase the trucks and enter into contractor arrangements. The truck drivers continued to make deliveries as requested by the company, but now used their own trucks under the new contractor arrangements, and the truck drivers invoiced the company on completion of deliveries. The High Court considered the rights and obligations of the parties under the contract and held that the truck drivers were independent contractors and no employment entitlements arose, since they carried on the business of providing delivery services. In this case, the fact the contract specified the truck drivers were to operate and maintain a truck for delivery and therefore providing their own vehicles was an important factor in the decision made.

Workers’ compensation insurance

Employers must insure their employees against work-related injuries. If employees are not properly insured by their employer, penalties may apply.

Contractors who are deemed employees must be included in wages for workers’ compensation purposes. Genuine contractors do not generally need to be insured as they are responsible for their own insurance.

If you are unsure whether you are meeting your tax obligations as a health and fitness business owner, reach out to your local BDO adviser for specialist advice today.